DP13076 Occupational Licensing, Labor Mobility, and the Unfairness of Entry Standards

Author(s): Mario Pagliero
Publication Date: July 2018
Keyword(s): bar exam, Labor market regulation, legal market, licensing, occupational regulation
JEL(s): J08, J44, L50, L84
Programme Areas: Labour Economics, Public Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13076

The combination of occupational licensing at the local market level often coexists with labor mobility across local markets. We empirically study a labor market in which a district-specific entry (licensing) examination is coupled with labor mobility across districts. Our analysis exploits a change in the grading procedure of the exam, from grading in the local district to grading in a randomly assigned different district. We document that licensing regulation leads to extreme heterogeneity across markets in admission outcomes (up to 50 percent differences in licensing exam pass rates), unfair (discriminatory) admission procedures (up to 49 percent unfair exam results), and inefficient mobility of workers. These findings, together with the estimated impact of the reform on exam outcomes and grading standards, provide the first evidence of regulatory competition based on strategic interaction among licensing boards.